Sayers & Anor v Dixon & Anor [2025] EWHC 1886 (Ch)

Judgment date: 30 July 2025

https://caselaw.nationalarchives.gov.uk/ewhc/ch/2025/1886

ICC Judge Barber. An insolvency case providing a helpful summary of the principles underlying the determination of an allegation of sham.

Background

The proceedings related to the insolvency of the first defendant (‘D’), who was declared bankrupt in 2017. The proceedings related to six declarations of trusts (‘DoTs’) executed by D in 2010, in which he purported to divest himself of all present and future assets in favour of his wife. After being made bankrupt D claimed that by virtue of the DoTs he had since 2010 had no assets.

At the same time as executing the DoTs, D also purportedly entered into a loan agreement with his wife which provided for his wife to loan back to him some of the monies signed over to her.

The claimants, two joint trustees in bankruptcy of D, were alleging that these DoTs and the loan agreement were shams, and sought an order setting them aside.

Sham – the law

ICC Judge Barber sets out from [38] a summary of the law concerning shams:

• A sham is an act done, or document executed, which is intended by the parties to give to third parties or the court the appearance of creating between them legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.
• The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition must have intended to give a false impression of those rights and obligations to third parties.
• Where the declaration of trust is bilateral there must be a common intention that the assets are to be held otherwise than as set out in the trusts, but a party who goes along with a sham neither knowing nor caring what they are signing is to be taken as having the necessary intention.
• A unilateral declaration of trust may be a sham, where the person making it does not intend to divest themselves of their interest in the relevant asset but makes the declaration for the purpose of inducing third parties to believe that they do so.
• The burden of proof is on the party alleging a sham, and the standard of proof is the normal civil standard of balance of probabilities.
• The fact that a transaction is artificial does not necessarily make it a sham, but may be a factor that can be taken into account when deciding whether it is a sham.
• There is a presumption that parties intend agreements to be effective, and that they intend to honour and enjoy their respective obligations and rights – the court should be slow (but not naively or unrealistically so) to find dishonesty.
• Evidence of subjective intention is admissible, including parties’ explanations and evidence of the parties’ subsequent conduct.
• A sham trust is void rather than voidable; however, even if void it stands until it is set aside.

Evidential considerations

The court considered the guidance given by Arden LJ in Re Mumtaz Properties Ltd [2011] EWCA Civ 610, which emphasised the importance of contemporaneous written documentation in assessing credibility; where the judge considers that certain documentation is likely to have existed were a party’s oral evidence correct, and that party is responsible for its nonproduction, then the document may be conspicuous in its absence and the judge is entitled to draw adverse inferences; [67].

D’s written evidence was found to have ‘contained half-truths and falsities for which he was largely unapologetic when challenged in cross-examination’; [76], and his oral evidence ‘was also inaccurate in certain material respects… At times, I am satisfied that he told deliberate untruths’; [78].

Discussion and conclusions

In defence of the allegation of sham, D relied on the fact that, inter alia; [144]:

• Over £1m from D’s income was invested by his wife into her business, which was directly managed by her without any direction from D.
• All decisions relating to properties, including whether to purchase, sell, let or renovate, were made by D’s wife.
• Income from D’s consultancy roles was received directly by his wife’s company.
• All family direct debits and standing orders were in D’s wife’s name, and came out of her sole bank account.
• D’s wife had, since the DoTs were signed, paid D modest amounts to meet incidental expenses as and when they arose.

ICC Judge Barber was satisfied that two of the six DoTs, as well as the loan agreement, were shams; [203]. Relevant to the court’s conclusions were, inter alia, that there was no change to D or his wife’s banking arrangements for four years after the DoTs were signed, and that between 2012 and 2018 a large percentage (approximately 56%) of D’s income was retained in D’s bank accounts, for which neither D or his wife could offer a satisfactory explanation; [208]. The DoTs were also not consistent with subsequent transactions carried out by D, including a property purchase which was dealt with almost exclusively by D; [213]. With respect to the loan agreement, not only was it never acted on, but it was impossible to perform – by operation of the DoTs, D would never be able to repay the loans as he would have no assets from which to do so; [212]. Regarding the involvement of D’s wife, the court found that she had the necessary intention in that she simply ‘went along’ with the sham, not caring whether or not the documents were true; [203]. The DoTs were therefore set aside; [219].

In relation to the remaining DoTs, the court concluded that there was insufficient evidence of D’s subsequent conduct to establish that they were shams; [218].